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KiwiSaver growth funds improve but risks remain

KiwiSaver growth funds have had another strong quarter but they still lag behind default funds in performance over the last two years, according to Mercer’s latest KiwiSaver survey.

Growth funds led all categories in the quarter to December 31 with a median return of 3.4%.

Balanced funds came in next with 2.5%, followed by conservative funds (1.8%) and default funds (1.7%).

The quarter wrapped up a positive year for KiwiSaver growth funds, which achieved a median return of 16.5% for the year, well ahead of balanced funds (12.1%), conservative funds (8.1%) and default funds (7.2%).

The best performing fund for both the December quarter and the whole year was the Fisher Funds Growth Fund, which produced a return of 5.5% in the quarter and 48.4% across the whole year.

Mercer had the best performing funds in the default and conservative categories across the whole year, while AMP took out both categories in the December quarter.

The Axa Balanced Fund was top in its class for the year (19.7%) and was tied with the AMP Balanced Fund for top honours in the quarter with a 3.6% return.

But looking back over the last two years reveals a different picture.

Growth funds were hammered in 2008 with a median return of -22.1% and balanced funds didn’t fare much better, losing 12% that year while default funds were the only category to make a median gain (0.7%).

As a result growth funds are the worst-performing category over the two-year period, with a return of -4.4% compared to a 4.1% return for default funds.

But Mercer’s New Zealand boss Martin Lewington warned investors not to read too much into the two-year figures.

“The returns of the past two years demonstrate both the severity of the global financial crisis and the speed of the rebound.

“The conservative positioning of default funds has paid off in the last two years, but this doesn’t necessarily mean it is the best option for all investors.”

And he warned that while KiwiSaver funds have rebounded from lows reached during the financial crisis, there is still volatility ahead.

“Equity markets are in for a bumpy ride with many risks still facing global economies such as high government debt and the potential to slip back a gear if stimulus spending is withdrawn too quickly, which could well impact upon the rate of growth for KiwiSaver funds.”

Funds under management for the six default funds have grown by almost $1 billion in just one year, from $842.8 million in December 2008 to $1,807.6 million in December 2009.

The Mercer survey also showed that managers have opted for a position which is overweight shares at the expense of overseas fixed interest and cash.

More by Niko Kloeten